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Indias entrepreneurial future

Few countries have more entrepreneurial potential than India. It’s home not just to the wave of IT offshoring firms of the 1990s and early 2000s, but also to some of the most interesting unicorn tech startups in the world, including Freshworks, Paytm, Oyo and of course Flipkart, which sold to Walmart last year for $16 billion.

India though is also at something of an economic crossroads. Unlike China, which as we discussed yesterday faces a conflict between open entrepreneurship and strict party control in its next stage of development, India must build up its indigenous startups while also opening up to the global economy.

That economic balancing act will be tough. As James Crabtree, a long-time writer of the Financial Times based in Mumbai, argues in his book The Billionaire Raj, India faces a triple threat of “inequality and the new super-rich, crony capitalism, and the travails of the industrial economy” as it seeks to move the country into middle-income status.

Crabtree, who built up access among India’s traditional business elite over many years, sees a nation that is starving for more government capacity. India has transitioned in a few short decades from a moribund economy languishing under a sclerotic and byzantine bureaucratic model (sometimes referred to as the “license raj”) into an increasingly open and competitive market for goods and services.

Yet, success outside of a scant few industries — namely IT services — has been undergirded by political access and the trading of favors. Crabtree chronicles a whole crop of entrepreneurs from across the country in industries as far afield as mining to liquor to aircraft to show the constant intermixing of Indian business and Indian politics.

That crony capitalism is at the heart of what he dubs today’s “billionaire raj” — a government that isn’t for the ultra-rich so much as it lacks any capacity whatsoever to stand up to its worst excesses and corruption. The book is one part travelogue, one part analysis, and one part biographical bookshelf that together paint a complicated portrait of India’s growth ambitions and challenges to scale.

Given where India’s fortunes have been made the past few decades, the book mostly ignores the tech industry, save for fleeting mentions scattered about. But I asked Crabtree in an interview last week where he saw the country headed, and how technology might underpin that.

“People thought that India was going to become the next hot market for Silicon Valley tech money after China, but it doesn’t look like that will be the case,” he explained. Unlike China, which created friction in market entry for foreign tech companies, India has been reasonably open. “The biggest search engine in India is Google, the biggest social network is Facebook,” he noted. “They don’t make much money in India, but they have spectacular user growth.”

“When I lived in Mumbai, there was a big tech investment wave in the after wave of the Alibaba IPO,” he explained. “There were these great hopes that India would follow the sort of hockey stick growth” seen in China. Yet, the country’s demographics don’t back that up. “India has a tiny middle class — 10-20 million” using a reasonable definition of the term “middle class.” That group is simply not large enough to support the valuation dreams underpinning some of India’s most-discussed unicorns. “Growing users is really easy, but growing revenues is just much more challenging,” he said.

The challenge ahead for India is that a form of economic nationalism is increasingly popular in Delhi. We have covered a bit of this change around data localization / sovereignty, but it is certainly much wider than those policies. “I think there is a slow but steady trend toward closure that is partly to do with India’s domestic politics” and partly due to international climate, Crabtree explained. The thinking is that, “China has produced Alibaba, Tencent, and Baidu [… but] India hasn’t produced any major global stars yet.”

Fueling that rift is a sense that foreign tech giants “don’t pay much in the way of tax, they are not Indian companies” and that they “haven’t behaved particularly well.” Crabtree was referring specifically to Facebook’s Free Basics program, which became deeply controversial in the country, although those feelings are not limited to just Facebook.

India has a massive election coming up in just a few weeks, which will decide whether current Indian prime minister Narendra Modi stays in power. Beyond just policy, Crabtree sees a major challenge for all foreign tech companies, but particularly those operating social networks. “The stakes are very high for how social media manages the stresses and strains of a competitive and potentially nasty Indian political campaign,” he said. “If they are blamed for something that went wrong… this would be immensely damaging.”

India has the potential to be the single largest democratic free market economy in the world. But it needs to simultaneously cut down on its corruption, create jobs for millions of new entrants to the labor economy every year, stand up a new generation of digital-first behemoths, all the while balancing the needs of an incredibly diverse and cacophonous democracy buffeted by global markets and tastes. That’s ultimately a tall order, but if India wants to migrate from a “billionaire raj” to an “entrepreneur raj,” it will have to do all of that — at once.

Talking about borders: Talent-friendly immigration driving tech north of the border

Roberto Machado Noa/LightRocket via Getty Images

Written by Arman Tabatabai

Yesterday, we talked about the growing difficulty of the H-1B visa application and approval process in the US, and how it threatens America’s long-term entrepreneurial edge. In a prime example of the connection between immigration policy and technology leadership — the FT put out a deep-dive analysis on the rapidly growing Toronto tech and startup scene, with much of the expansion attributable to Canada’s talent-friendly immigration policies.

Canada applies the “give grads a visa with their diploma” approach many have preached for in the US, providing multi-year work visas to foreign students upon graduation. And while the US continues to make the individual application process more difficult, Canada has streamlined its process. Applications for highly-skilled workers, as well as their families, are processed within just a couple weeks.

While there are clearly several intertwined factors behind the growth of Toronto as a tech hub, talent is certainly one of them, with the city having added nearly 100,000 jobs in a five-year period. Toronto offers a case-in-point precedent of how cities can use immigration to gain a technological edge, and why the United States’ misdirected crackdown is undermining its own.

Intel cancels agreement with China chipmaker in fight for next generation chip dominance

Photo via Intel Corporation

Written by Arman Tabatabai

Intel continues to shift its strategy as it tries to improve its position for next-generation chip leadership. At the MWC conference in Barcelona, Intel announced that it was terminating a multi-year partnership with one of China’s premier state-backed mobile chipmakers, Unisoc. As part of the original agreement announced roughly a year ago‚ Intel would share its new 5G modem chips with Unisoc to help Intel increase its lagging market share in China, while providing Unisoc technological know-how needed for it to compete with more-advanced competitor offerings.

Like many breakups, the two sides are saying the decision was mutual and not a result of the political tension between the US and Chinese governments. However, the Nikkei Asian Review reports that insiders say the US’ recent harsh tone with Chinese tech and semiconductor companies definitely played a role in the decision.

As we discussed yesterday, Intel has a lot of catching up to do after years of complacency and will now have to find a different avenue to make up ground in the Chinese market. Unisoc is also certainly feeling the pain of the lost knowledge transfer, as market share can disappear quickly in a highly competitive industry where IP is often the secret sauce. The cancellation of what seemed to be a mutually beneficial deal reinforces the fact that the fight for next-generation semiconductor dominance is just as much political as it is financial, if not more so.

Other news from around the world

Facebook’s censors are struggling at work

Casey Newton at The Verge offered us a deep-dive into the horrific working conditions and post-traumatic stress of working as a censor for Facebook and its contractors. While artificial intelligence and advances around computer vision may allow more of this to be automated in the future, Newton brings up a key question: what are we doing right now to help the working-class workers who keep social networks safe for users?

Could corporate VC unlock the Japanese startup market?

Pavel Alpeyev at Bloomberg has a deep-dive highlighting the rapid expansion of Japanese corporate venture capital. The trend is permeating the country’s largest companies across all industries, with the number of Japanese corporate venture arms increasing by more than 8x since 2015. The Japanese market has traditionally been viewed as an unfriendly environment for startups, but the growing availability of capital and support from Japan’s all-powerful incumbent corporations makes building a company seem more feasible. ~ Written by Arman Tabatabai

Obsessions

We have a bit of a theme around emerging markets, macroeconomics, and the next set of users to join the internet.

More discussion of megaprojects, infrastructure, and “why can’t we build things”

Thanks

To every member of Extra Crunch: thank you. You allow us to get off the ad-laden media churn conveyor belt and spend quality time on amazing ideas, people, and companies. If I can ever be of assistance, hit reply, or send an email to danny@techcrunch.com.

This newsletter is written with the assistance of Arman Tabatabai from New York